Finally We Get to Read the Mobility Assets Sale Agreement with Darl McBride

Thursday, September 02 2010 @ 12:46 PM EDT

Darl's purchase of the mobility assets was all done pretty much in the dark. We, the public were told one thing in advance, but something else after the fact. But now we get to see the final agreement.

Darl and Me Inc Holdings LLC, Darl's LLC, got not only the copyrights but a patent application as well, including rights to sue for any past infringement. The patent is entitled "Systems and Methods for Providing Distributed Applications and Services for Intelligent Mobile Devices," and the application was filed in 2006, #11/533347. We were told in advance of the sale that this patent application was excluded, but then he got it anyway.

What was SCO thinking, I was asking myself as I read the agreement? I could just see it: "Darl sues Google's Android". Why not? Everyone else and his dog is. Of course there's some prior art on that method of making fast, easy money. Seriously, though, if you check the transaction history for this patent application with the USPTO's PAIR system, what you learn is fascinatingly funny.

At the time of the sale in April, the patent application was still working its way through the system. There was a non-final rejection notice that issued in January of 2010, which presumably Darl knew about if he did any due diligence. In July, post-sale, there was a request for more time to answer that notice and then they filed a reply. But on August 17, there was a final notice of rejection anyway of claims 1-17 and 19-20. Prior art and obviousness. Claim 18 had been "withdrawn from consideration" so the rejection was not only final but total. Darl has 3 months to reply, and, in some conceivable convoluted drag-it-out process the rejection outlines, it could last six months, tops. But it looks like Darl bought a pig in a poke.

Nevertheless, it was a gamble on SCO's part, a calculated one, no doubt, but still, any way you look at it, SCO's Cahn for a mere $100,000 sold off, as you can see in Section 2.1(a) of the agreement, all the related IP, copyrights and trade secrets, the works, and the source code and the possible patent and everything else (domain names, servers, test phones, assumed contracts, etc.) to what some call a serial litigator. The announced deal in advance was not a sale of the IP but a license for it, most of it, and the price then was $35,000. That's what was approved initially. So Darl got the patent application and all the rest of the IP for an additional $65,000, more or less. Weren't the professional fees for doing this deal more than that? SCO also got a license back on the source code, and it licensed the source of patchck to Me Inc Holdings. SCO did own a real patent, but it got sold to Liberty Lane, if you recall, after the Darl deal. You'll see it in the Excluded Assets list in the Darl agreement, so this is so you don't get confused.

So, SCO arranged to get protection for itself and the trustee, while throwing the rest of us to the wolves, although in fairness, Cahn likely got an assessment of the patent's likelihood of issuing prior to making the deal, making it a rather canny transaction on his part, one unlikely to harm anyone but Darl. That likely bothered Cahn very little, I'm guessing. Maybe it was his favorite part. Revenge is a dish best eaten cold, I've heard.

Here's what makes me think that. Cahn made another savvy move. If you notice, there is one section in the agreement that applies not to the buyer Me Inc Holdings but exclusively to Darl McBride. He individually in Section 6.2 had to promise not to to sue the seller, SCO Group, *or the Trustee*, for any conceivable reason that he might invent "from the beginning of the world and thereafter". The letter Darl sent him was not endearing. And Mr. Cahn didn't just fall off a turnip truck.
Here's the letter from Darl to Cahn, where he accused him of conflict of interest and breach of fiduciary duty, implying that he was billing too much and looking after himself and not SCO's interest in the litigation. Not endearing at all.

Darl and Me Inc Holdings can still sue SCO regarding the particular sale here, of course, but if Darl wants to do that, the agreement says he has to go to Bankruptcy Court in Delaware, which he agrees has exclusive jurisdiction. Given how the judge there does whatever Cahn asks him to, I'd say that clause was in the nature of a further layer of protection. There's even a clause agreeing that neither party will request a jury trial and neither will talk to the media about this sale. I deduce Mr. Cahn has been watching Mr. McBride at work.

Darl's Me Inc Holdings business is in business, by the way, or at least it has a website, in case you are drooling to be a Darl customer. And why wouldn't you be?

Well, personally I'd want a no-sue clause first. With a no-slander, no-stalking clause thrown in for good measure. But that's just me.

Because Darl threatened Cahn at least impliedly if he didn't pursue the litigation against IBM and the rest as Darl wanted him to, the no-sue clause matters. Cahn did pursue it, but now, he can make decisions about all that without the same level of threat.

I notice that the IP agreement was signed by Darl on April 20 and SCO signed on April 21, 2010. The auction, we were told, was on April 5. So, this would tend to support the claim SCO made that the deal changed when a second bidder showed up at the auction, and that this is why the deal changed.

Exhibit E shows the breakdown by class of the amounts paid, $10,000 for Class V, $85,000 for Class VI, and $5,000 for Class VII. I assume, after reading this explanation of IRS Classes, that Class V is "tangible personal property and real estate", so the equipment goes here. Class VI is "Section 197 intangible assets except for goodwill" which
includes, according to this IRS explanation, the promise not to sue and the licenses and trade name, certain computer software, and "Certain separately acquired interests in patents or copyrights". Class VII is "goodwill and going concern value". $5,000 for that last is all the parties thought it was worth.

So, Mr. Cahn has removed Darl as a threat to himself and to SCO.
Of course, Cahn still has to get his head out of the mouth of the other tiger, Mr. "We don't care how big you are. If you mess with us, we're going to take you on, even to our utter destruction" Ralph Yarro. From what I see here in this agreement, I'd say Cahn has the skills to do it, if he wants to.